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San Miguel and seven against one

In the 12-month period ending yesterday, Jan. 11, 2018, the share price of San Miguel Corp. rose 38 percent to P132.30 per share, from its low of P95.50 in January 2017.

At P132.30 per share, San Miguel’s shares outstanding of 2.378 billion are worth P314.67 billion ($6.29 billion) today, an increase of P87.58 billion ($1.75 billion) from the January 2017 market capitalization of P227.09 billion ($4.54 billion).  For consistency, I use a constant P50 to $1 to convert from pesos to dollars.

With 32.58 percent ownership in SMC, its president and vice chairman, Ramon S. Ang is worth P102.52 billion or $2 billion based on his San Miguel holdings alone.  He also owns 86.57 percent of listed Eagle Cement Corp., the Philippines’ most integrated, most efficient and most modern cement complex and which has a market cap of P77.5 billion.  So 86.57 percent of P77.5 billion is P67.09 billion or $1.34 billion. 

Add the $2 billion from SMC and $1.343 billion from Eagle Cement and  Ramon Ang has wealth of $3.34 billion, making him one of the Philippines’ ten richest individuals.  Eagle Cement, RSA reckons, makes P7 billion a year.

RSA turns 64 on Jan. 14.   Last weekend, he accompanied SMC Chair and mentor Eduardo M. Cojuangco Jr. for a medical checkup abroad.   ECJ is 82.   RSA looks very healthy.  So you can see that RSA will have a long reign at San Miguel.

In terms of EBITDA (earnings before interest, taxes and depreciation), SMC is easily valued at P500 per share, which implies that the country’s largest corporation in sales and profits is actually worth P1.189 trillion ($23.78 billion), probably more, in terms of the value of its cash flow earnings. What is 32.58 percent of that?  P387.37 billion ($7.74 billion).

The stock market has only recently begun to appreciate how profound has been the impact of Ang’s strategic moves and his management of colossal San Miguel Corp. and Eagle Cement.

RSA’s rise to enormous wealth seems to cap his nearly half century of entrepreneurship and deal making.  Still, he doesn’t seem to have even begun.   Tremendous, if not unlimited, prospects are clearly ahead for SMC.

He began doing business as a teener in short pants in what is now upscale (for business) Jose Abad Santos in Tondo, Manila, helping manage his father’s auto parts shop.  His most valuable tool then was the once ubiquitous and ponderous PLDT Telephone Directory.

Young Ramon would gently nag clients interested in buying parts and other supplies and he would scan the phone directory for suppliers who could provide him what the customer wanted.  He would borrow the parts and sell them to his client, even at a small profit.  But then, he did not employ capital because, in effect, he was selling by consignment.

In January 1999.  Eduardo “Danding” Cojuangco Jr. recruited RSA to become San Miguel’s vice chairman. In 2002, Ang became vice chairman, president, and chief operating officer.   In 2008, he uncorked a major expansion and diversification program for SMC.

RSA transformed San Miguel in ways no one could have imagined or have done better.  No Philippine company or conglomerate has transformed itself so dramatically and radically in the last half decade as has San Miguel.

Even while growing and strengthening its traditional core businesses like beer, foods, and packaging, SMC went into petroleum refining and marketing, power generation, infrastructure, airports, mining, mass transit, and airline.

RSA disrupted the business of utilities, power generation, and infrastructure. SMC moved into these businesses far ahead of the others.

Under RSA, during 2008 to 2013, SMC revenues were doubling every 24 months while assets were doubling every 2.5 years.  The frenetic pace somewhat slowed after 2013 as San Miguel paused to digest its acquisitions, expansion and diversification projects. Still, growth rates remain robust.

Today, San Miguel is the Philippines’ fastest-growing conglomerate, the largest in annual revenues, profits, and diversity of businesses.

In December 2017, a super consortium of seven large conglomerates was formed to battle Ramon Ang in the airport business.

The seven rich families (Zobel de Ayala, Gokongwei, Aboitiz, Gotianun, Lucio Tan, Andrew Tan and Manuel V. Pangilinan) will bid to repair and manage the ageing Naia airport.  They will modernize the mess that is the Naia which has four terminals operating on a single runway and all of them decrepit and past their useful life.

Ang’s answer to them: A brand-new airport, built from the ground up on at least 2,500 hectares of raw land in Bulacan province, just north of Manila.  Ramon is already building the infrastructure to connect this new airport to the old Naia and the Makati business district.  He has the 24-km Magallanes to Balintawak connector road which will be operational by late 2019.  

Of course, RSA has the 88.85-km Tarlac-Pangasinan-La Union Expressway that cuts travel time from Clark to La Union by at least two hours.  In the south, he has the 69-km South Luzon Expressway that connects Makati to Batangas.  In effect, Ang a high-end infra network that will run from Batangas to Baguio with a first class international airport in between, complete with four runways and a terminal that can handle 100-million passengers a year (three times Naia’s capacity).

In Bulacan, Ang has other aces.  San Miguel is Luzon’s biggest electricity producer.  It has offered cheap electricity to industries in Bulacan and nearby provinces.   The new airport will  be surrounded by industrial estates.  So Ang can offer cheap factory sites.   Cheap land, cheap electricity, modern infrastructure giving easy access to major markets and sources of raw materials for industries.  What do you have?  Massive industrialization, massive growth, massive employment.  “Our business,” chuckles Cojuangco, “is progress.”

No wonder seven large companies or dynasties bandied together to fight one man and his vision.

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Topics: San Miguel and seven against one

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